HomeMarket NewsStocks NewsReliance Industries could be the first Indian company to reach $200 billion market cap -- BoFAML explains how

Reliance Industries could be the first Indian company to reach $200 billion market cap -- BoFAML explains how

Bank of America Merill Lynch (BoFAML) believes RIL could on the basis of three paramount drivers which could add over $70 billion of enterprise value (EV) in the company. It believes most of the new businesses which are in gestation period will take around 24 months to acquire scale and contribute meaningfully to RIL’s fair value.

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By Mousumi Paul  October 18, 2019, 6:24:10 AM IST (Updated)

Reliance Industries could be the first Indian company to reach $200 billion market cap -- BoFAML explains how
Will Reliance Industries become the first Indian company to reach $200 billion market cap? Bank of America Merill Lynch (BoFAML) believes it could on the basis of three paramount drivers which could add over $70 billion of enterprise value (EV) to the company. BoFAML, in its bull case, looked at a 24-month fair value of the company as it believes most of the new businesses which are in gestation period will take around 24 months to acquire scale and contribute meaningfully to RIL’s fair value.


According to the brokerage, RIL’s new commerce initiative to empower 'kiranas' in the organised retail market could work and add about $32 billion EV. Second, Jio’s fibre broadband business where it could leverage Den/Hathway’s networks will drive India’s current low fibre broadband and bring in $10 billion, and third, digital initiatives like advertising and lending, along with SME/broadband could add $22 billion incremental value to the company.



An additional $17 billion EV could be added in bull-case scenario led by better than expected cellular tariff hikes/better gross refining margins (GRMs) due to International Maritime Organisation (IMO). We expect 45 percent of FY22 EBITDA to come from consumer business helping in multiple re-rating. Reiterate ‘buy’ rating on RIL as we find the company well-positioned to gain traction in the consumer business, added the report.

BoFAML believes that the retail business will be the biggest driver of upside in the bull case led by 10 million 'kiranas' to pump in Rs 750/month. Also, Jio’s ARPU will increase to Rs 177 in FY22 from Rs 122 helping the company to extract scale benefits and operational leverage. After Jio’s entry into the SME market, the telco will be able to target 15 million SME users which translates to Rs 2,000/month. In the case of its oil-to-chemical business, GRMs could move to $13 in FY21 which will add $1 billion in EBITDA and $700 million of PAT to RIL.

In terms of capex, the brokerage said that the RIL management stated that it's coming to an end of major capex cycle both in oil & telco businesses. In the 12-24 month phase, the capex will go down before it picks up again. For FY21/22, expect capex to be in the range of $7-7.5 billion.

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